entrntry strategies of multinational companies into the capital market of bangladesh

8/9/2019 Entrntry Strategies of Multinational Companies Into the Capital Market of Bangladesh

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Entry Strategies of Multinational Companies into the Capital Market of Bangladesh

S a y m a A h m e d / I D - 0 6 3 0 4 0 0 8 / B B S / B R A C U n i v e r s i t y 1 | P a g e

E EE E NTRYNTRYNTRYNTRYS SS S TRATEGIES TRATEGIES TRATEGIES TRATEGIES OFOFOFOF

M MM M ULTINATIONALULTINATIONALULTINATIONALULTINATIONAL C CC C OMPANIESOMPANIESOMPANIESOMPANIESINTO THEINTO THEINTO THEINTO THE

C CC C APITAL APITAL APITAL APITAL M MM M ARKET ARKET ARKET ARKET OFOFOFOF

B BB B ANGLADESH ANGLADESH ANGLADESH ANGLADESH


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Internship Report

Submitted To

Anup Chowdhury

Senior Lecturer

BRAC Business School

BRAC University

Submitted By

Sayma Ahmed

ID: 06304008BRAC Business School

BRAC University

Date of Submission

30 th September 2010


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Letter of Transmittal

30 th September, 2010

Anup Chowdhury

Senior Lecturer


BRAC University

Subject: Submission of Internship Report on Entry Strategies of Multinational

Companies into the Capital Market of Bangladesh

Dear Sir,It is a great pleasure to present you my internship report on Entry Strategies of Multinational

Companies into the Capital Market of Bangladesh. I had an energizing experience throughout

the preparation of this report which further enhanced my knowledge about the capital market and

experienced real life examples of strategies.

I have tried my level best to complete the study in a proper way despite having limitations. I

hope this report will fulfill the requirements suggested by you and hope you will appreciate my

effort put forth hereby.

Thank you for your kind consideration and guidance.

Sincerely

Sayma Ahmed

ID: 06304008


BRAC University


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Acknowledgement

At the very outset, I would like to solemnly thanking to the Almighty Allah.

I would like to convey my gratitude to my supervisor Anup Chowdhury faculty of BRAC

Business School, BRAC University; who initially encouraged me to work on the selected topic

and for providing me guideline, detailed feedback and technical advice for preparing this report.

He always gave me his suggestions in making this study as flawless as possible. I am also

extremely grateful to him for giving me such an opportunity that has enriched my area of

knowledge vastly.

I am also thanking my parents who has made it possible for me to be a part of such educationalorganization and created the way for me to have excellence in education.


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Content Page Number Abstract 8

Chapter-1Introduction 10Theoretical Framework 10Objective 11Methodology 12

Outline of Methodology 12Data Collection Method 12The Flow chart construction 13Time Frame in Methodology 13

Scope 14Limitation 14

Chapter-2Capital Market 16

An overview of Capital Market in Bangladesh 16-17Dhaka Stock Exchange 16Chittagong Stock Exchange 17SEC & CDBL 17

Multinational Company 18Multinational Companies in Bangladesh 19

Multinational Companies in DSE 20Multinational Companies in CSE 21Comparison of two Multinational Companys IPO 21

Chapter-3IPO Process 23Steps Prior Attaining the Consent from SEC 24

Advisors Selection 24

Valuation of Assets and restructuring 24Selection of Bankers to the Issue 24Selection of underwriters 24Draft Prospectus 26

Application Submission 26Consent from SEC 26

Steps after Obtaining the Consent from SEC 27 -28


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Submission of prospectus 27 Announcement for the investor 27Provide full prospectus 27 Application for listing 27

Subscription period 28Transaction Rate 28 Application to Stock Exchanges for Listing 28 Approval of listing 28

Chapter-4Strategies of MNCs 30Pricing Strategies 31

Fixed Price Method 31Book Building Method 32Dutch Auction Method 32

IPO Pricing Strategies in Bangladesh 33Pricing Strategy of Grameenphone 34

Share Price Based on NAV 34Share Price based on Book building Method 35Share Price based on Historical EPS 35Share Price based on projected EPS 36

Pricing Strategy of Marico Bangladesh Limited 37Ownership of the Companys Structure 38Shareholding Pattern of Grameenphone 38Shareholding Pattern of Marico Bangladesh Limited 41Marketing Strategy 43-44

Buzz Marketing 43Selecting Issue Managers 43Selection of Underwriter 44Using Brand Name 44

Legal Procedure 45- 48Selecting Advisor 45Management Structure 45

Management Structure of Grameenphone 45 Announcement for the Investors 48

Chapter-5Findings 49References 50

Appendix 51- 57


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Content Page NumberTables

2.1: Performance of DSE 172.2: Companies listed in DSE 20

2.3: Multinational Companies in DSE 20

2.4: Multinational Companies in CSE 21

2.5: Comparison between two MNCs 21

4.1: NAV per share of GP 34

4.2 Average EPS of GP 35

4.3: Average Market P/E 35

4.4: Average Share Price of Marico Bangladesh Limited 37

4.5: Ownership structure of Grameenphone 394.6: Shareholding Pattern of Grameenphone 40

4.7: Ownership Structure of Marico Bangladesh Limited 414.8: Existing Shareholding Pattern of Marico Bangladesh

ggjjjjj Limited 42

Figures1.1: Data Collation Method 12

1.2: The Flow Chart Construction 13

1.3: Time Frame in Methodology 13

4.1: Previous Organogram of Grameenphone 46

4.2: Current Organogram of Grameenphone 474.3: Board of Directors of Grameenphone 47

Graphs2.1: Multinational Companies 18

4.1: Ownership structure of GP (prior and after IPO) 39

4.2: Existing Shareholding Pattern of GP 404.3: Existing Shareholding Pattern of Marico Bangladesh

mike Limited 42


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Abstract

The main purpose of the report is to know the strategies that can be used by the Multinational

Companies in order to enter into the capital market of Bangladesh. With a target of achieving theobjective, I have worked for revealing the strategies that are used by the MNCs to enter into the

capital market. Therefore I have discussed some strategies like 1: Share Pricing Strategies, 2:

Strategy for Shareholding Pattern, 3: Few Legal Strategies and finally 4: Few Marketing

Strategies. I have observed the strategies of two well know MNCs in Bangladesh and found that

in the case of pricing strategies different companies have different approaches that are influenced

by several factors. A similarity was found at the share holding pattern of the observed MNCs.

However there were variations in marketing approaches based on the prospecting companys

goal and mostly for the Legal Procedures the basic objective is to obey and made necessary

amendments according to the pre defined rules and regulation.


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CHAPTER - 1


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Introduction

A healthy and growing economy is considered as a heart for any developed country. Recently

according to many researchers, capital market plays a role of an engine for the growth of the

economy. While lending by commercial banks provides valuable initial support for corporate

growth, a developed stock-market also contributes for moving into a more mature growth phase

of the economy. Now a days Asia is considered to be one of the powerful economies in the

world. As a result recent booming economies of India and China are attracting all other North

American multinational companies to invest. Bangladesh is a South Asian country which always

has the potential to be a developed country and favorable climate, cheap labor has made

Bangladesh as one of the most attractive options for the foreign investors. Therefore in recent

times we are witnessing many multination and big conglomerates are entering into Bangladeshimarket. On the other side a steady capital market and investors willingness to invest into the

share market has also been observed. Many local companies, banks have entered and are entering

into the capital market of Bangladesh. We have seen the biggest IPO in the history of

Bangladesh by Grameenphone has also depicted a strong base for the multinational companies

into the capital market. So now situation demands the existing multinational companies to enter

into the capital market for a more developed capital market base in order to accelerate the

economic growth of Bangladesh. For that purpose, here in this report I will discuss some

important strategies that can be used by the multinational companies in order to enter into the

Bangladeshi capital market. After an extensive search in different media, I didnt find out any

form of research paper or any kind of analysis in the predefined topic. However for that reason

my report is not able to make any literature review.

Theoretical Framework

Theoretically a firm can raise funds in many ways. Such as taking bank loans, issuing shares, bonds, mutual funds, preferred stock and so on. If a company wants to raise funds through

issuing shares a company needs to submit some documents like:

Memorandum of Association and Articles of Association

A brief profile of the Company


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Certificates of Incorporation and Certificate of commencement of business

Audited Financial Statement for last 5 years

Members/shareholders list together with their shareholding position.

Return of allotment(s) filed with the Registrar of Joint Stock Companies and Firms.

Existing material agreements, including deed of mortgage (if any).

Status of loan, including information concerning loan default, if any, of the company.

VAT and Tax identification numbers.

Due diligence certificate

NOC from the lending bank (s)/financial institutions.

Relevant resolution (s) and Boards resolution of the shareholders in the general meeting of

the company.

Credit rating report.

But security only can be offered for sale to the public in, it must first be registered and then

approved by the Securities and Exchange Commission both for Private Placement Issue or a

Public Offering. But as the topic suggested the major objective of these report is to find out the

effective strategies that are followed by the MNC to enter into the capital market of Bangladesh,

rather than discussed on the theories it will be more focused on applied strategies.

Objective

In terms of doing any work whether it is managerial or clerical, first its vital to define some set

of activities that has to be accomplished at the end of the day. These set of specified efforts or

predefined activities are known as objective. So before going in depth to the project work, I

have defined some objectives that will be fulfilled through out the report. So my desired end

points are-

Specific Objectives:

Stock Pricing Strategies

Strategy behind the shareholding pattern

Some legal Strategies

Several Marketing Strategies


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Methodology

Outline of Methodology

Methodology for this study regarding the entry strategies of the multinational companies inBangladesh capital market will reveal the entire process that would be followed for the

completion of the study successfully. This study will be carried out in several steps. Following

methodology would be adopted to fulfill the objectives:-

Data Collection Method

This report is mostly descriptive, a few part consisting of analysis. As the over all report is on

some strategies, so I have used both the primary and secondary source. These are as below:

Fig: 1.1: Data Collation Method

The Secondary Data has been collected from different sources such as Websites, e-mail,

various reports, prospectus, books, journal and publications. The entire methodology of the

report is showing below for better clarity and easier understanding through a flowchart

construction

Primary data

Secondarydata

Information from

indirect source

Publishedreport, Internet

sources etc.

Report

Visiting DSE forinformation


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The Flow chart construction:

Fig: 1.2: The Flow Chart Construction

Time Frame in Methodology

Fig: 1.3: Time Frame in Methodology

2010 Eve of

August

Mid

August

End of

August

Eve of

September

Mid

September

End of

SeptemberGathering

information

Organizinginformation

Analyzinginformation

Arrangingcontents

Writing thereport

ReportsubmissionPresentation

Planning

i. Following the guidelineii. Searching on Secondarysourcesiii. Gathering Statisticaldata from websites andreviewing research papers.iv . Analyzing data andidentifying appliesstrategies

Application

Making a formal Reporti. Thinking,ii. Taking adviceiii . Discussion.

Activities


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Scope

In the project, the range of views will be limited within few boundaries, which I define as myscope. So the scopes are as follows-

This report will only be focused on few above mentioned strategies.

To prepare the report, I have only accessed the information which is published in the

prospectus of Grameenphone Bangladesh Limited and Marico Bangladesh Limited.

Limitation

As the report is all about discovering the strategies to enter into the capital market of Bangladesh

for Multinational Companies, there were some limitations behind it. The study and findings of

the report is only concern about the strategies that will be followed by the Multinational

Companies. Almost every company is unwilling to disclose their strategies. Therefore rather than

analyzing all the multinational companies in capital market, this report has been prepared with

the help of the information that are available in the prospectus of two big multinational

companies; Grameenphone Bangladesh Limited and Marico Bangladesh Limited. Apart from

that as we all know entering into the capital market requires a lengthy process to pass which also

involves many strategic decisions by the issuers. So due to the limitation, this report will only be

focusing on some of the strategies which has been defined in the objective. Apart from that, two

different stock exchanges of Bangladesh have started their operations in the late 1990s. So in

order to make this report most up to date, recent information of some recent IPOs will be

considered.


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CHAPTER - 2


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Capital Market1To understand the strategies in order to enter into the capital market properly, firstly it is

required to understand the capital market. Capital market in very simple terms is a market where

companies, other organizations and government can raise long term funds by issuing securities.

In other sense capital market is the group of interrelated markets in which capital in financial

form is lends or borrowed for medium and long term and in cases such as equities for

unspecified periods. As already mentioned main function of capital market is to raise funds and

this fund raising is regulated by the performance of the stock and bond markets as both the stock

and bond markets are parts of the capital markets. Broadly capital market is consists of Primary

markets which deals with the newly issued stocks and Secondary market handles the previously

issued securities and most high liquid in nature.Mainly capital market is consider as a growth engine for an economy, and performs a critical

role in acting as an intermediary between savers and companies. Companies enter into the capital

market with an objective of raising additional funds for business expansion. Vibrant capital is

likely to support a healthy economy. While lending by commercial banks provides valuable

initial support for corporate growth, a developed stock-market is an important pre-requisite for

moving into a more mature growth phase.

An overview of Capital Market in Bangladesh

Dhaka Stock Exchange

Bangladesh Capital market is one of the smallest in Asia but third largest in South Asia Region.

It has started it journey in 8 April, 1954 when the East Pakistan Stock Exchange Association Ltd.

was established under the name of Dhaka Stock Exchange (DSE). It has formed and managed

under the Company Act 1994, Security Exchange Commission Act 1993, Security and Exchange

Commission Regulation 1994 and Security Exchange (inside Trading) regulation 1994. But

formally it has begun its trading in 1956. The trading was suspended during the liberation war of

Bangladesh in 1971. With a change in government in policies Capital market of Bangladesh

1http://www.thedailystar.net/forum/2008/may/potential.htm


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again started its trading in 1976 after the liberation war. At that time there were only 9

companies were listed with total paid up capital of Tk.0 .138 billion and market capitalization of

Tk. 0 .147. Since then the stock exchange continued its journey of growth. A small summary of

its performance as of 2006-2009 is given below.

Dhaka Stock Exchange Performance at a glance 2

Table: 2.1: Performance of DSE

Chittagong Stock Exchange

In the year of 1995, Bangladesh got its second stock exchange in Chittagong named Chittagong

Stock Exchange (CSE). It was incorporated as a company in April, 1994, but formally started

trading from 10 October, 1994. Currently there are 234 companies are listed with CSE.

Security Exchange Commission & Central depository Bangladesh LimitedHowever in a purpose of implementing more regulations, gaining a more control over the

operation of the stock exchange, protect the interests of securities investors, develop and

maintain fair, transparent and efficient securities markets the government of Bangladesh

established the Securities and Exchange Commission of Bangladesh on 8th June, 1993 under the

Securities and Exchange Commission Act, 1993. Apart from that Central depository Bangladesh

Limited (CBDL) was also incorporated as a public limited company in the year of 2000 in a

purpose of operating and maintaining the Central depository System of Electronic Book Entry,

recording and maintaining securities accounts and changing the ownership without any physical

movement and execution of transfer instruments.

2 http://www.dsebd.org/mglc.php -- Date: 06/09/2010

Year 2006 2007 2008 2009No. of Securities 310 350 412 443No. of Securities in mm 1546.05 2081.00 2759.00 3136.00Market Capitalization (Tk. mm) 323367.94 742195.87 1059530 1312773Turnover of listed Securities (Tk. mm) 65079.11 322867.07 667964.82 565038.22

Daily Avg. Transaction ((Tk. mm) 285.43 1362.31 2818.42 4520.31No. of IPOs 7 14 12 4


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Multinational Company

3Multinational companies are simple termed as the business enterprises which are having its

manufacturing, sales or services subsidiaries in more that one foreign country. It is also known astransnational company or Multinational Enterprise. Two well known researchers Christopher

Bartlett and Sumantra Ghoshal has argued that in todays global environment companies need to

face intense competition and simultaneously faces both strong cost pressure and strong pressure

for local responsiveness. According to them todays MNCs do not reside in their home country

but can develop in any of the firms worldwide operation. So for multinational companies

maintain the flow of skills and products offerings should not be all one way from home country

to foreign subsidiary, rather the flow should be also from foreign subsidiary to the home country.

The basic operational strategy of a multination company is depicted below.

Graph: 2.1: Multinational Companies

So a multinational company equally focused on the low cost and also the local responsiveness in

order to place their product in other foreign country.

3 From the book of -- International Business by Charles W. L. Hillhttp://www.icmab.org.bd/component/option,com_docman/task,doc_download/gid,272/Itemid,1/

Pressures forCost Reduction

Pressures for LocalResponsiveness

High

Low

Low High

MNC


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Multinational Companies in Bangladesh

As we all know the economy of Bangladesh is growing rapidly and some initiatives by the

governments making it is easy for more FDI. Cheap labor, Less rules and regulations, Steady

economic development and most importantly a huge customer base making Bangladeshi market

lucrative for the multinational companies. So starting from the prior liberation war period to till

now there are many unknown, well known multinationals are operating in Bangladesh. Some of

them are

British American Tobacco Bangladesh Limited (FMCG)

Unilever Bangladesh (FMCG)

Reckitt Benckiser Bangladesh Limited (FMCG)

Nestle Bangladesh (FMCG)

Marico Bangladesh Limited (FMCG)

Berger Paints Bangladesh Limited (Paint Industry)

Chevron ( Petroleum Industry)

Mobil ( Petroleum Industry)

Grameenphone Bangladesh Limited (Telecommunication Industry)

Nokia Siemens (Joint Venture of Nokia and Siemens)

Youngone (Garments Industry)

HSBC (Banking Industry)

Standard Chartered Bank (Banking Industry)

So these are the list of few multinational companies in Bangladesh. However not every yet

entered into the capital market of Bangladesh. Among them Reckitt Benckiser Bangladesh

Limited, Marico Bangladesh Limited, Grameenphone Bangladesh Limited, Berger Paints

Bangladesh Limited are already started their trade into different stock exchange. In order to

make this report more fruitful, we are only focusing on the strategies of Grameenphone which

they have used for entering into the capital market of Bangladesh.


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Multinational Companies in Dhaka Stock Exchange

In Dhaka Stock Exchange there are total 22 different industries where around 461companies are

listed as of 9 th September, 2010. A summarized form of it is given below:

No. IndustryListedOrg. No. Industry

ListedOrg.

1 Bank 30 12 Jute 32 Cement 7 13 Miscellaneous 113 Ceramics Sector 5 14 Mutual Funds 26

4 Corporate Bond 2 16Pharmaceuticals &Chemicals 21

5 Debenture 8 17 Services & Real Estate 4

6 Engineering 22 18 Tannery Industries 5

7FinancialInstitutions 21 19 Telecommunication 1

8 Food & Allied 23 20 Textile 289 Fuel & Power 11 21 Travel & Leisure 3

10 Insurance 44 22 Treasury Bond 17911 IT Sector 5 4Total Listed Org. 178

Table: 2.2: Companies listed in DSE

Among the above list, a few numbers of companies are multinationals which are listed in Dhaka

Stock Exchange. They are

Industry ListedMNC's Name of the Company

Cement 1 Heidelberg Cement Bangladesh Limited

Engineering 2 SINGER Bangladesh, Renwick Jajneswar

Miscellaneous 1 Berger Paints Bangladesh Ltd.Tannery Industries 1 Bata ShoeTelecommunication 1 Grameenphone Bangladesh Limited

Pharmaceuticals &Chemicals 3

Glaxo SmithKline,Marico BangladeshLimited, Reckitt Benckiser BangladeshLimited

Total 9 -Table: 2.3: Multinational Companies in DSE

4 http://www.dsebd.org/by_industrylisting1.php


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Multinational Companies in Chittagong Stock Exchanges

In Chittagong Stock Exchange, there are total 7 companies are listed which are

Industry ListedMNCs Name of the company

Cement 1 HEIDELBER Cement Bangladesh limitedLather Industries 1 Bata shoeMiscellanies 1 British American Tobacco Bangladesh Co. Ltd.Telecommunication 1 Grameenphone Bangladesh LimitedPharmaceuticals &Chemicals 3

Berger Paints Bangladesh Ltd., Marico BangladeshLimited, Reckitt Benckiser Bangladesh Limited

Total 7Table: 2.4: Multinational Companies in CSE

Comparison of two Multinational Companys IPO

To understand the entry strategy of the multinational companies in Bangladesh Capital market,

here I have analyzed some basic information of two IPOs by two renowned multinational

companies in Bangladesh.

Table: 2.5: Comparison between two

Company Name GP MaricoAuthorized Capital *mn 40000 400Paid up Capital*mn 13503 315Number of Shares for IPO 69439400 1492100

Issue Price Per (+ Premium) 70 90Premium 60 80Opening Date of subscription 4th October, 2009 2nd August, 2009Closing Date of subscription 8th october,2009 6 h August, 2009Credit rating: Short term ST-1 ST-1

Long term AAA AA+Managers to Issue Citigroup Global Markets BD. Ltd IDLC Finance Limited

Equity Partners LimitedUnderwriters IDLC Finance Limited ICB Capital Management Limited

Citigroup Global Markets BD. Ltd Prime Finance & Investment Limited

Eastern Bank LimitedGreen Delta Insurance CompanyLimited

Green delta Insurance co. Ltd. Lanka Bangla Finance LimitedIFIC Bank Limited IDLC Finance LimitedThe City bank Limited Equity Partners Limited

Note: Information are Collected from DSE Trust Bank Limited


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CHAPTER - 3


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IPO Process

In order to explore the strategies that are used by mutational companies to enter into the

Bangladesh capital market, firstly here I will focused on the actual steps which are requires by

each and every company to follow before entering into capital market. Usually a new or existing

company which is not listed on the exchange start issuing shares by inviting the public to buy

share which is called initial public offering or in short IPO. IPO is such a process where a

company offers a percentage of its ownership, or equity, to new investors who acquire a stake in

the company by buying its shares. The issuing company receives a capital boost from the funds

raised and the investors receive a share of the future performance of the company. It is mainly a

mutually beneficial arrangement

As basic idea of issuing share for raising capital or raising funds from public, so IPO is also

referred as Going Public. In a much summarized form to enter into the capital market of

Bangladesh, Multinational Companies need to go through from the steps like:

Need helps from the underwriter or investment bankers for issuing share.

Underwriters determine the valuation of the Company.

Register with SEC.

Present the IPO fact File and prospects to the investors usually via Road show

However before going for the IPO, as a rule each company needs to take consent from the SEC

which requires series of actions where MNCs applied different strategies. Consequently all the

prior and afterward steps of getting consent from SCE are the legal procedures that company

bound to follow which are described below:


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Steps Prior Attaining the Consent from SEC

1. Advisors Selection:

For any company, before obtaining the consent from the security exchange commission,

company needs to select or appoint a legal advisor. Basic activity of a Legal Adviser is to work

on favor of the company and responsible for ensuring security of internal information of the

company. Usually in Bangladesh all the local company appoints one local advisor. But for the

multinational company it requires to appoint two advisors.

2. Valuation of Assets and restructuring:

One of the most important tasks for the MNC before entering into the capital market is tovaluation of the asset. It is mandatory as it proves to the SEC that whether the prospecting

company has the strength. Another important process is changing organization employee

management and also restructuring and obtaining Reports thereon. Listed Organization s all top

level employee usually has to follow by the Auditor.

3. Selection of Bankers to the Issue:

The selection process relies on the investment bankers reputation as expertise, quality ofresearch coverage in the companys specific industry. The selection strategy varies from

different issuer. For example if issuer would like to see its securities held more on by

institutional investors that by individual, then the company will select that Bankers who has

more expertise on institutional investors. Apart from those other functions of Bankers Letter is to

confirm the opening of separate accounts for IPO and accepting their appointmen t5 .

4. Selection of underwriters :

Selection of underwriters & completing underwriting agreement is another essential process of

IPO listing procedure. Underwriters are liable for successful float of all the shares. Public

offerings can be managed by soul managed or multiple managers (underwriter) which merely

5 Rule -18 of Public Issue Rules 2006


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depends on the size of the offering. Main functions of the underwriter is to make all the

arrangements for the due diligence process, pricing and distribution of stock.

After selecting the underwriter, company needs to get some clearance report and follow

some mediatory course of actions in order to step forward towards the IPO. They are

Collection of NOC from Lenders: Collection of No Objection Certificates (NOC) from

lenders is a mandatory to get IPO approval. Lender should issue a letter stated no

objection of Companys changed capital structure. If the company have loan from several

banks, then it is necessary to collect NOC from all the lenders.

6Audit of Accounts: Organization should have Audit of their accounts by authorized

Auditor. The audited account shall not be older than 120 days of the end of the period for

which the Financial Statement is prepared. 10 copies of Financial Statement havesubmitted to SEC, one copy each to DSE and CSE.

7Credit Rating Report : Generally it takes at least two months to complete the Credit

Rating after the Annual Audit is completed and credit report is mandatory for IPO listing

process. For getting a good response from the investors, the strategy is usually focused

towards getting a good credit rating.

Agreement with CDBL: Before submission of Application to SEC, it is mandatory to

complete agreement with Central Depository Bangladesh Limited (CDBL). CDBL

maintain online transaction of securities by taking some fees and they listed all the

investor in Stock Market .

6 Audited report should be duly signed on each page, by the issuers chief executive officer/managing director, chief

financial officer and issue manager according to the Rule -3 of Public

7 Rule 18 (21) of the Public Issue Rules 2006 says that the application for consent shall be accompanied by some

exhibits including Credit Rating Report. No issue of shares at a premium or issue of right shares shall be made by a

public company unless the issue is rated by a credit rating company and declaration about such rating is given in the

prospectus or right offer document (Sec.3 of Credit Rating Companies Rule 1996).


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Approval from Sponsors: It is necessary for the company to take approval from the

sponsor for documentation the process, undertaking and information.

Refund warrant guarantee: Company also needs to open a separate Bank Account for

refund warrant purpose. It also called Mother Accounts for Refund Warrant.

5. Draft Prospectus:

In this stage, upon receiving the consent from the SEC, the draft prospectus is prepared for

disclosing all the information to the general investors. This prospectus is also known as RED

HERRING. It usually contains the financial and statistical data, general information, declarations

and Due Diligence Certificates, description of business, ownership structure, lock in provision,

determination of public offering price and so on.

6. Application Submission:

Application has to submit to SEC for consent to Issue with approved Prospectus and deposit the

Govt. Fees of BDT 10,000. 8If the application is incomplete the SEC shall inform the applicant

within 28 days of receipt of application and if the issuer fails to remove incompleteness within

30 days of communication, it shall file fresh application.

7. Consent from SEC :

SEC will issue a Latter of Consent if the application and information, documents are provided bythe company are reliable. 9It usually issued within 60 days of receipt of complete application. If

the application submitted by the applicant is fresh and correct then usually it takes 45days to get

IPO consent.

8 (Rule -17 of Public Issue Rules 2006)9 .(Rule -17(4) of Public Issue Rules 2006)-- http://www.sb.iub.edu.bd/intern_report_asaduz_zaman.pdf


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Steps after Obtaining the Consent from SEC 10

After getting the approval from SEC, a company needs to complete few more requirements

which are descried below. It is also important to mention that the following rules are specified

for every company where company gets little scope of implementing their own strategies.

1. Submission of prospectus:

The Company will submit the abridged version of prospectus in SEC for approval, usually before

10- 15 days prior to opening of subscription. The company also has to submit signed copy of the

Prospectus with Registrar of Joint Stock Company (RJSC).

2. Announcement for the investor: Company will have to Publish of abridged version of prospectus in 4 newspapers (2 English + 2

Bengali) within 3 working days of the issuance of. A paper clipping of published Abridged

Version of Prospectus has to submit to SEC within 24 hours of publication in newspapers.

3. Provide full prospectus:

Issuer Company will have to submit 40 copies of printed prospectus to SEC and also printed

copies of abridged version Prospectus and application forms to Bangladesh Embassies by EMS.

4. Application for listing :

At this point Applicant should apply to all Stock Exchanges in Bangladesh and submit the vetted

prospectus to the Stock Exchanges within 7 working days from the date of issuance of the

Consent Letter

10 ( Section 138 of Companies Act 1994)(Rule 5(1) of Public Issue Rules 2006)(Rule 6(2) of Public Issue Rules 2006).

(Rule 17 of the Public Issue Rules 2006)..(Rule - 5 of Public Issue Rules 2006)(Regulation 3 (2) of DSE Listing Regulations).(Regulation 3(3) of DSE Listing Regulations)


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5. Subscription period:

Subscription List shall be opened and sale of securities commence after 25 days of publication of

Abridged Version of Prospectus. Subscription List shall be closed after shall remain open for 5

consecutive banking days.

6. Transaction rate:

To apply spot buying rate (TT Clean) in US $ and UK pound and Euro of Sonali Bank for

subscription of NRB s. Spot buying rate to be collected from Sonali Bank on the date of opening

of subscription.

7. Application to Stock Exchanges for Listing :

For application for Listing issuer has to submit it to SEC attested copies of applications filed

with Stock Exchanges within 7 working days of issuance of consent lette r 11.

8. Approval of listing:

Final step is granting of listing applications by DSE and CSE for issuing the share. The

Exchange shall decide the question of granting permission within a maximum period of 6 weeks

from closure of subscription lists.

This was a very precise view of taking consent from the SEC for issuing shares. But in reality

issuing shares requires further more condition which is under Section 2CC of the Security and

Exchange Ordinance, 1969. As my main concentration is to find out the entry strategy into the

capital market of Bangladesh only, so I have mainly focused on some predefine strategies.

However the Conditions Under Section 2CC of the Security and Exchange Ordinance, 1969 is

given in the appendix part.

11 Application shall be made by the Company at least 10 days prior to issue of first Prospectus--http://www.thedailystar.net/forum/2008/may/potential.htm--http://english.peopledaily.com.cn/90001/90778/90858/90863/6857439.html


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CHAPTER - 4


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Strategies of MNCs in Bangladesh

When Grameenphone has started their IPO a new history has made by them. And once again in

the year of 2009 when Grameenphone Bangladesh Limited has first entered into the capital

market, the history of capital market in Bangladesh has experienced a new era. A new era where

capital market got its highest peak, volume of traded shares left all the histories behind. These

were some remarkable events happen when GP has entered into the capital market of

Bangladesh. If we look aside one more success story can be seen. One of the big MNCs in,

Marico Bangladesh Limited has also entered into the capital market of the Bangladesh in the

same year as of GP. And since then both of them are really performing outstanding which can be

witnessed by looking at their shear price, trading volume and demand by the investors for their

shears. Now what was happen to GP and MBL so that they were able to make such bunches of

histories. No doubt the answer would be the strategies that they followed before and after entered

into the capital market of the Bangladesh. However thinking about the selected topic to make the

findings more generalized two previously mention MNCs has taken under consideration to come

up some strategies that are used by them to enter into the capital market of Bangladesh.

Therefore in order to reveal some helpful strategies, here in this part of my report I have

discussed and come up with the strategies like Share Pricing strategy, Shareholding Strategies,Marketing Strategies and some Legal Strategies which also can be implemented by other MNCs

in future to enter into the capital market of Bangladesh.


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Pricing Strategies12One of the crucial parts of the IPO is pricing the IPO. It is considered as the most significant as

the pricing of the IPO only can determine the future capital base of the prospecting company. In

simple terms pricing or valuation has been constantly seen as a debate between what is worth

verses what the market thinks its worth versus what a strategic buyers thinks it worth. Usually a

company planning for IPO needs to appoint lead managers in order to find out the appropriate

price at which the shares should be issued. However a company can float its shares in many

ways, but the pricing of the shares tend to be influenced by the size of the company, its risks and

demand of the shares. So before enter into the capital market of Bangladesh, pricing strategies of

shares of the multinational companies is determined by using several pricing methods. Very brief

discussions about all the methods are given below.

Fixed Price Method:

By its own terms, fixed price method is price at which the securities are offered and would be

allotted is made known in advance to the investors. Here the investment bank consultation with

the firm, values the company and fixes the price which investors can subscribe to. For example

on the Dubai Financial Market, IPOs are usually sold at AED 1 per share.

The price of the shares could be at par value or at a premium above par value. Usually demand

for the securities offered is known only after the closure of the issue. In Fixed Price method,

offerings in some cases are high oversubscription levels. Of course, these IPOs are often viewed

as a success and the method is popular with investors due to the immediate returns it often

generates in the first few days of trading.

Conversely, fixed pricing method can lead to an undervaluing of the issuing company as the

price of the company's shares at IPO is often lower than a "fair" market value. As a result, the

low price attracts investors and the share price often rises dramatically in the first few days of

trading after the IPO, as investors positively revalue the company. Consequence for the

company, and its pre-IPO shareholders is, they may have given away substantial value.

12 http://www.secbd.org/Prospectus-GP.pdf


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13Book Building Method :

In contrast with Fixed price Method, in Book Building method the issuing company does not fix

the share price in advance rather gives a price band to the investors within which are can bid.

IPOs final price is then determined on the basis of all the bid prices. In short the process of

Book Building method is

The issuer or Company nominated the merchant bank first

The concerned company announces the total number of IPO shares with the price range.

Investors bid for these issues shares within fixed time period and place their preferences

through broker.

Brokers then place all these bids through electronic media.

Then merchant bank and IPO issuing company evaluates these bids based on their own

fixed criteria.

A cut-off price is then decided by accepting the lowest price at which all the IPO

securities can be disposed off.

IPOs are then allotted to those investors whose bid prices are above the cut-off mark

Dutch Auction Method:

The third method of IPO pricing is Dutch Auction Method. For IPOs, however, auctions are

surprisingly rare. This method challenges the traditional book building and fixed price methods

because the role of underwriters in pricing IPOs are less significant here. Moreover, information

asymmetries between underwriters and issuing firms are greatly reduced under the Dutch auction

method. It should be noted here that the IPO under pricing is considerably less under the Dutch

auction method. However the rarity of IPO auctions is not due to unfamiliarity but relative risk

compare to book building is a major factor in their lack of popularity. In contrast with other

methods, auctions require allocations which are based on current bids, without considering any

past relationship between certain bidders and the auctioneer, and they are usually open to

everyone.

13 http://finance.mapsofworld.com/ipo/book-building.html


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IPO Pricing Strategies in Bangladesh

At the early stage, all the pricing of the IPOs in Bangladesh was conducted through fixed pricing

method. However according to the Chairman of SEC Mr. Faruq Ahmad Siddiqi in a workshop

session of BBM (Book Building Method), this method of pricing IPOs (FPM) does not

encourage the successful entrepreneurs as it is mostly under price the IPO which was reflected in

many previous IPOs of Bangladesh. Also under this system, the leading companies cannot set

appropriate price for their shares. So highlighting the fundamental weakness of the existing IPO

pricing method (FPM), on March 5, 2009 the SEC has approved the Book Building Method of

pricing Initial Public Offerings (IPOs) for both domestic and foreign companies. But in order to

use this book building method of IPO pricing, a company has to fulfill some pre requisites. All

these pre requisites are so profound that it will highly influenced the share pricing strategies byany local, national and multinational company. The full version of these pre conditions are given

in appendix, but a very briefly listed below 14.

The company should have been in operation for at least last immediate 5 years.

The company shall have net profit in immediate last 3 years with steady growth in earnings.

The company shall have no accumulated loss at the time of application

The Company shall have minimum rating of Investment Grade

Holding annual general meeting

The Company shall offer at least 10 % shares of paid up capital (including intended offer) or

Tk 30 crore whichever is higher.

Shall be required to conduct independent audit of last 5 years annual report by a firm of

Chartered Accountants who satisfies the requirements of Securities and Exchange Rules,

1987/ (SEC Panel of auditors)

However, Commission, if deems appropriate for the interest of investor or development of

capital market, may exempt all or any of the requirements.

So in the light of above discussion, to enter into the capital market in Bangladesh, MNCs can use

any of the pricing methods for pricing their shares. However it is wise for the big MNCs to use

14 http://www.dsebd.org/pdf/work_shop.pdf


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the Book Building Method as this method allows the issuer to price their shares at an exact value

provided following all the conditions of SEC.

Pricing Strategy of Grameenphone

As GP has offered price of Taka 70.00 share is at a premium to the par value per share of Taka

10.00 per share, 4 alternative methods for valuating the share prices using the Enterprise Value

to LTM EBITDA method.

Share Price Based on NAV: In order to price the shares, one of the alternatives is valuing the

shares based on the net asset value of the company. The total shareholders equity and net asset

value per shares as of December 31, 2008 is presented below.

par Value No. of shares outstanding (in Millions) 1215Par value per share (TK) 10Paid up Capital 12152Share premium 14Retained Earnings 13267Capital Reserve 14Deposits from shareholders 2General reserve 2140Total 15436Shareholder Equity 27588Less intangible and deferred cost of connectionrevenue -8554Net tangible assets 19034

No. of Shares outstanding 1215Net tangible assets per shares of Tk 1 each 15.66NAV per share 22.7

Table: 4.1: NAV per share of GP

However NAV per share number fails to capture a significant part of the true value by

underestimating the intrinsic value of the intangible assets which are consider to be the strength

of GP.

Share Price based on Book building Method:


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GP also has conducted the book building method to price their shares. End of this process, 47

institutional investors and 3948 of the GPs employees have participated in the offering. They

have paid Tk. 7.40 per share for approximately 553.8 million shares for a total of Tk 4097.8

million. But in interest of the general investors, GP has offered price of Tk. 7.00 per share in the

Public Offering which represent a discount of 5.4% to the share price. Subsequent to effecting a

change in par value from Tk. 1.00 to 10.00 per share, the offer price in the placement has been

revised to taka 74.00 per share. The public offering price similarly has been changed to Taka

70.00 per share.

Share Price based on Historical EPS:

EPS valuation method is considered being the best for mature telecom operators which have

achieved their long term steady state. In that point of view the share price valuation of GP based

on EPS is given below.

Based on five years historical average EPS, average EPS of GP is

Par valueAverage Net Income for (2004-2008) 5,436,809,603Current shares outstanding (million) 1215Average EPS 4.47

Table: 4.2 Average EPS of GP

The average P/E ratio for all the companies listed on the DSE during same five years from 2004-

2008:

2004 2005 2006 2007 2008Average Market P/E(yearly) 12.27 15.01 12.8 18.76 21.33

5 years Average 16.03Table: 4.3: Average Market P/E


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So at par value of Tk 10.00, offer price for GP is

Offer price = (5 Years historical average EPS) X (DSE P/E Ratio)

= (4.47) X (16.03)

= 71.73

So GPs offer price is Tk. 70.00 per share at a discount to this implied price.

Share Price based on projected EPS:

Another way of valuation the share price is to projecting the future EPS. The share price

calculation using this method is based on several assumptions. These assumptions are merely on

the risk factor and uncertainty. A number factors like change of market condition, regulatory

policy, regional and global economic trends, political environment and other factors affecting

this pricing method. This pricing method also considers the future outlook and business

performances. So therefore using this pricing method GP also can assume what would be the

share price in the year of 2011.


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Pricing Strategy of Marico Bangladesh Limited15As we all know Marico Bangladesh Limited is also enlisted in the stock exchange in

Bangladesh. In order to reveal the actual strategies of pricing the shares before IPO, here I have

also analyzed their pricing strategy. Mainly they have followed a weighted average method

where they have calculated NAV from historical cost, Weighted Average Historical EPS,

Projected EPS and Average market price of other stocks. The calculation method is also under

the 16SEC Rules. The pricing calculation is given below:

Particularsa

NAV(Tk)

bWeight

a X b

NAV at Historical cost 29.53 25% 7.38Weighted Avg. Historical EPS 52 25% 13Projected EPS 121 25% 30.25Average Market Price of Similar Stocks 158 25% 39.5Average Price 90.13

Table: 4.4: Average Share Price of Marico Bangladesh Limited

Based on the above calculation, Marico Bangladesh Limited has set the Offer Price at Tk 90/-

(Taka Ninety Only), in association with IDLC Finance Limited and Equity Partners Limited, the

Joint Managers.From the above discussion I can state that in the case of MBL, they have set the price of the

shares on a weighted average method. Apart from them, GP also analyzed the many pricing

methods and justified their pricing strategy. According to them NAV method is highly applicable

to the company who are actually in the stage of introduction or growth. Being a mature company

mainly they have priced their stock using market P/E ratio and their historical EPS. But their

pricing method is mainly derived from BBM and EPS. So in the conclusion of share pricing

strategy, I can state that there are many pricing strategies which also have its own merits anddemerits. But which strategy is needed to use again depends on the companys position the life

cycle, market situation, industry situation, market price of other stocks and so on.

15 http://www.maricobd.com/investor_relations/Marico_Prospectus.pdf16 Clause No. 16 (b) of the SEC (Public Issue) Rules, 2006


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Ownership of the Companys Structure

One of the major reasons for entering into the capital market is to fund collection or rising fund.

Company is allowed to raising fund by selling the ownership which is basically the main

objective of being public limited company. After entering into the capital market or offering

shares to the general people, general people or investors become the owner of the company. Now

at the time of IPO, company firstly needs to decide at what portion or percentage of their

ownership they will sell to general people. Now this kind of decision varies from company to

company. Sometimes many companies sell their maximum shares or more than 50% ownership

to the investors. So fixing on the ownership structure of the company is a strategic decision. Here

I have analyzed the ownership structure of Grameenphone prior and post IPO which was also

influenced by the regulations of SEC.

Shareholding Pattern of Grameenphone17Before entering into the capital market of Bangladesh, GP was mainly owned by the Telenor

Mobile Communications and Grameen Telecom. Both of them have ownership of 62% and 38%

respectively. Other profitable and non profitable institutions like Nye Telenor Mobile - II AS,

Nye Telenor Mobile - III AS, Telenor Asia PTE Ltd., Grameen Kalyan, Grameen Shakti are also

engaged with Grameenphone. But according to SEC, in order to enter into the capital market or

floating the shares and getting the publicly listed company, that company should have 7 different

owners. As a result Grameen Telecom (GTC) sells some of the share to the other five subsidized

company owned by them.

After getting consent from Securities and Exchange Commission there was a change of around

10% in existing Share holder structure. Shares will be deducted from two major share holders

17 Nye Telenor Mobile II AS & III AS Subsidiary of Telenor Mobile Holdings AD and an affiliate ofTelenor.

Telenor Asia PTE-- Subsidiary of TMC and an affiliate of Telenor. Grameen Telecom- Non profitable organization Grameen Kalyan -- Non profitable organization Grameen Shakti-- Non profitable organization


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Telenor AS and Grameen Telecom (GTC). After Private placement and Initial Public Offer these

two Major share holders will have Telenor 55.80% and Grameen Telecom (GTC) 34.20%. This

amendment can be shown below.

Name Num of Ordinaryshares held

PercentageBefore Offerings

PercentageAfter Offerings

Telenor MobileCommunications AS 753407724 62% 55.80%

Nye Telenor Mobile - II AS 215 0% 0% Nye Telenor Mobile - III AS 215 0% 0%Telenor Asia PTE Ltd. 215 0% 0%Grameen Telecom 461766409 38% 34.20%Grameen Kalyan 22 0% 0%

Grameen Shakti 22 0% 0%Total 1215174822 100% 90.00%

Table: 4.5: Ownership structure of Grameenphone

Graph: 4.1: Ownership structure of GP (prior and after IPO)

Shareholding Pattern before IPO

62%

0%0%0%

38%

0%0%

Telenor Mobile Communications ASNye Telenor Mobile - II ASNye Telenor Mobile - III ASTelenor Asia PTE Ltd.

Grameen TelecomGrameen KalyanGrameen Shakti

Shareholding Pattern after IPO

55.80

0%0%0%

34.20%

0%0%

Telenor Mobile Communications ASNye Telenor Mobile - II ASNye Telenor Mobile - III AS

Telenor Asia PTE Ltd.Grameen TelecomGrameen KalyanGrameen Shakti


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So from the above analysis, its clear to state that GP has restructured their ownership pattern by

selling 10% of their shares to the general investors. Among this 10% shares around 4.91% hold

by institutions and 5.09% in publicly hold. 18A summary of them is given below.

ShareholdersNo. ofShares

No. ofShareholders

% ofTotal

Sponsors(Foreign) 453408369 4 55.80%Sponsors(Local) 461766453 3 34.20%Institutions 66325021 550 4.91%Public 68800179 189842 5.09%Total Shares 1050300022 190399 100.00%

Table: 4.6: Shareholding Pattern of Grameenphone

Graph: 4.2: Existing Shareholding Pattern of GP

Furthermore In total 312,501 shares were allocated with 277,757 for resident Bangladeshis,

34,720 allocated to Non-resident Bangladeshis and 24 to Mutual Funds.

So its easy to understand the basic strategy of GPs restructuring their ownership pattern.

Firstly they have decided to sell 10% of their ownership to the general public.

18 http://investor-relations.grameenphone.com/Major-Shareholdings.html

Current Share Holding Pattern

4.91% 5.09%55.80%

34.20%

Sponsors(Foreign)Sponsors(Local)InstitutionsPublic


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The major sponsor Telenor Mobile Communications and Grameen Telecom has sold out

a very small percentage of their ownership to the other five institutions in order to

comply with the SEC rules.

Most importantly their main objective was to hold the majority of the shares by the parent

company Telenor Mobile Communications.

Shareholding Pattern of Marico Bangladesh Limited19Apart from the GPs shareholding pattern, if we look at the shareholding pattern of one of the

biggest MNCs in Bangladesh, Marico Bangladesh limited, then we will have a clear view of the

strategies behind the ownership of the companys structure followed by the Big publicly listed

MNCs in Bangladesh.From the very beginning of Marico Bangladesh Operation, we have observed that Marico

Limited, India has hold 100% shares of the company, however there were 6 more nominee

shareholders who basically owned only 1 share which is 0% of the total shares.

Name of Member Shareholding statusNo of

SharesShareholding

(Tk) PercentageMarico Limited,India Sponsor 28349993 283499930 100.00%

H.C. Mariwala

Nominee shareholder of

Marico India 1 10 0.00%

Milind S.Sarwate Nominee shareholder ofMarico India 1 10 0.00%

VijaySubramaniam

Nominee shareholder ofMarico India 1 10 0.00%

Debashish Neogi Nominee shareholder ofMarico India 1 10 0.00%

Kunal Gupta Nominee shareholder ofMarico India 1 10 0.00%

K.S. Balaji Nominee shareholder ofMarico India 1 10 0.00%

Soumendra S. Das Nominee shareholder ofMarico India 1 10 0.00%Total 28350000 283500000 100.00%

Table: 4.7: Ownership Structure of Marico Bangladesh Limited

19 http://www.maricobd.com/investor_relations/Marico_Annual_Report_PDF_FINAL.pdf


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However after listed in the capital market of Bangladesh, Marico Bangladesh Limited has also

followed the same strategy which we have observed in Grameenphone Bangladesh Limited.

Among the total number of the shares they have issued 2.53% shares to institutions and 7.47%

shares hold by public. Therefore the companys ownership is 10% hold by the external investors

and rest of the 90% is still hold by the company itself, Marico Limited.

Name of Member No of shares PercentageMarico Limited,India 28350000 90.00%Institution 798350 2.53%Private 2351650 7.47%Total 31500000 100.00%

Table: 4.8: Existing Shareholding Pattern of Marico Bangladesh Limited

Graph: 4.3: Existing Shareholding Pattern of Marico Bangladesh Limited

So from this analysis we can say that maximum multinational companies which have been listed

in stock exchange have structured their ownership in such a way that maximum shares remains

in the hand of the company.

Shareholding Pattern

Marico Limited,India, 90.00%

Private, 7.47%

Institution,2.53%

Marico Limited, India

Institution

Private


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Marketing Strategy

Buzz Marketing:

Buzz marketing the term itself explains its meaning. Main objective of the Buzz Marketing is

creating create Buzz among the target customer. In many cases we have seen this Buzz

Marketing strategy. Many companies have created Buzz among their target market or customer

before launching their product into the market. Similarly before entering into the capital market,

one of the strongest strategies is to create the Buzz. Now as far we all know the purpose behind

going public is to collect fund from many institutional and general investors. So to attain the

attention of the investors, multinational companies can use this buzz marketing strategy. For

example, at the early stage of IPO of Grameenphone Bangladesh Limited, they have created a

Buzz among the investors. At that time people were eagerly waiting for the GP to come into the

market. Therefore a total number of 11, 23,140 investors have applied for the primary shares of

Grameenphone Limited (GP), which is 3.55 times over than the total lot of GP shares. Local

investors submitted 11, 83,502 applications totaling Tk, 1,657.97 corer registering 3.79 times

oversubscription. As a result GP was able to create history in Capital Market of Bangladesh.

Selecting Issue Managers:

In many cases selecting the manager to issue is also a weapon of marketing strategy. For many

institutional investors, it is important who is managing the share of the prospecting company.

The brand image of the Managing Company itself can increase the market value and demand for

the shares of the issuer company. Therefore I have observed the same phenomena for selecting

the managers. In my analysis of the multinational companies, two prospecting company or Issuer

Grameenphone Bangladesh Limited and Marico Bangladesh Limited also followed this

marketing strategy. However, selecting the Issue Managers has also influenced by the companys

purpose of attracting the category of investors.

In the case of Grameenphone Bangladesh Limited, they intended to attracted more quality

investors. Even in very specific terms they were willing to attract more foreign investors to

invest into their company. As a result Citigroup Global Markets Bangladesh Private Limited has


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been appointed as the Global Coordinator, Issue Manager [and Lead Underwriter] for the IPO 20.

So here I have discovered that the Bran name of Citigroup Global Markets has also increased the

Brand value and credibility among the investors, specially the foreign investors.

If we look at Marico Bangladesh Limited, they have assigned IDLC Finance Limited as their

Issue Manger. Basic objective behind was to attract more local investors to invest in their

company and IDLC similarly has increased the trustworthiness among the investors by being the

main Issue Manager of Marico Bangladesh Limited.

Selection of Underwriter:

Now strategy of selecting the underwriters again varies from company to company. These

strategies could be influenced for example if the shares under subscribed bellow the whole offer,

then underwriter will have to buy and hold that particular amount of shares. Other factors that

determine the strategy of selecting underwriters are size of offering, reputation of the

underwriter, expertise of the underwriter and amount of the compensation that needs to be given

to the underwriter by the issuing company. Similarly, selecting the underwriter is also can be one

of the marketing strategies. For example in both the cases of Grameenphone and Marico, we

have observed a good numbers of underwriters and specially the renowned underwriters. It has

also increased the image of both the companies and simultaneously worked as a marketing tactic.

Using Brand Name:

Finally the point I will be focusing is the Brand Name. Brand Name works dramatically in the

mind of consumer. In many cases companies get more benefited through their brand name rather

the offered product or service. So before enter into the capital market, using the Brand Name will

also be a marketing strategy for any multinational company. Many critics may ask what makes

the Grameenphone Bangladesh Limited a biggest IPO in the history of Bangladesh. A good and

justified answer is their Brand Name. For example if any XYZ Company is entering into the

capital market. So inventors will pay less attention and less willingness to invest in that companycompare with any Branded Company. The reason behind this act is psychological factor that

affects the investment decision. So in this case multinational companies can use this factor as

their marketing strategy before entering into the capital market of Bangladesh.

20 http://www.thedailystar.net/story.php?nid=47143


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Legal Procedure

The above mentioned legal procedure is compulsory to follow for any issuer before going for

IPO. But different MNCs implement their strategies which again a matter of clandestine and

consider as know how. Therefore I have analyzed some factors that influence the strategies and

which are discussed below.

Selecting Advisor:

The strategy or reason behind selecting two advisors for MNC is the local advisor will better

serve in order to follow the local rule of the SEC. But the foreign advisor will serve in favor of

the MNC. For example in order to enter into the capital market of Bangladesh, Grameen phone

one of the leading multinational companies has appoint Barrister Ishtiak as Local advisor andCity group Legal House as Foreign legal advisor.

Management Structure:

Legal issues for being listed into the capital market, sometimes requires the company to change

their Organogram structure. The basic idea behind it is to design the Organogram of the company

which will ensure credibility, accountability, transparency, well-understood policies, procedures ,

efficiency, meeting all stakeholders interests. Therefore each and every company needs to

follow the Corporate Governance in order to guiding the Company towards the goal set by the

Shareholders. As a result a company need to form their management structure in such a way

which abide by SEC rules and regulation

Management Structure of Grameenphone:

By enlisting in the Capital market, GP also has changed their Organogram. The previous

Organogram is given below:


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Fig: 4.1: Previous Organogram of Grameenphone

As of 12 th June, 2007

Overhear we can see previously GP has a Vertical Management structure, where CEO plays a

vital role and authority of operating business in his own hand, each and every Departmental

Head is accountable to CEO. There was no audit committee or Board of directors who are

directly linked in the management structure

However for being listed in the capital market GP has done tremendous change in their

management structure.


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Fig: 4.2: Current Organogram of Grameenphone21As of January, 2010

In contrast with the previous management structure, here we can see that GP has introduced

Audit Committee, Board of Directors in their new Organogram. Here management is

accountable for his work under the Audit committee and Board of Directors which ensures the

trustworthiness of CEO in favor of shareholders. Furthermore in the Board of Directors they

have newly included Audit Committee, Treasury Committee, Human Resources Committee and

Health, Safety, Security and Environment Committee.22

Fig: 4.3: Board of Directors of Grameenphone

21 http://investor-relations.grameenphone.com/annualreport/GP%20Annual%20Report%202009%20Final.pdf22 http://investor-relations.grameenphone.com/annualreport/GP%20Annual%20Report%202009%20Final.pdf


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23According to GP, the main function of the Board is

The Audit Committee assists the Board in fulfilling its oversight responsibilities with

respect to internal control, financial reporting, risk management, auditing matters and

GPs processes of monitoring compliance with applicable legal & regulatoryrequirements and the Code of Conduct.

All significant financial matters which concern the Board are discussed in this committee

meeting in detail.

The Committee supports the Board in fulfilling its oversight responsibilities with respect

to Human Resources policy, including employee performance, motivation, retention,

succession matters and Codes of Conduct.

Announcement for the Investors:

Selection of 4 different newspapers is also a strategic decision for the MNC. Usually issuer

selects such kind of newspaper which is most popular and which contain mostly news of capital

market. However big companies sometimes used or spread rumor into the market before starting

the IPO. As a result it helps them to create huge demand inside the investors regarding the

investing into the prospecting company. For example, before actually start trading into the stockmarket Grameenphone has also used this kin of rumor which resulted huge demand of their

shares.

Apart from all these strategies sometimes multinational companies follows some unique

strategies like minting good relation with the Bank in order to get a NOC letter. Sometimes

companies brand value and good reputation may also used as strategic tool for the auditors and

sponsors as well.

23 http://investor-relations.grameenphone.com/annualreport/GP%20Annual%20Report%202009%20Final.pdf


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CHAPTER - 5


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Findings

After analyzing numerous different aspects of IPO and methodology of entering into the Capital

Market of Bangladesh, I have come up with some following findings. Such as

In order to price the shares, several pricing methods are used. But in Bangladesh up to

2009, most popular way of pricing share was Fixed Pricing Method.

Considering the short comings of FPM, SEC has decided to use Book Building Method.

But issuers also need to concern about the pre requisites made by SEC.

Apart from all these popular methods of pricing shares, there are some other methods.

Such as Grameenphone has followed Historical EPS method, Marico Bangladesh used a

weighted average method. However the main strategy behind pricing the shares is not price the shares such high

which will distract the investors to invest into the company and also not to make too low

which will cause under valuation of the prospecting company.

In the shareholding pattern, I have discovered that both Grameenphone and Marico

Bangladesh Limited have offered 10% of their shares to the general investors. Now this

percentage may vary from company to company and sometimes even industry to

industry.

So basic idea behind shareholding pattern is to hold the maximum shares in the hand of

the company in order to hold the ownership.

Apart from all the strategy, there were some interesting findings for Marketing Strategies.

A multinational company can use their Brand Name, different kinds of marketing

approaches like Buzz marketing, selecting a well known Issue Manager and so on. But

basic idea behind Marketing Strategy is to make the shares of the company maximum

creditable and profitable in front of the investors compare to others in the industry.

In my findings I have found out a lengthy procedure of IPO and listing requirements thathas to be followed by each and every issuer. However sometimes company needs to

change their management structure in order to comply with the corporate governance.


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References

From the book of -- International Business by Charles W. L. Hill

From the Book of Fundamental of Investment Management by Geoffrey A. Hirt

http://www.thedailystar.net/forum/2008/may/potential.htm

http://www.dsebd.org/mglc.php

http://www.icmab.org.bd/component/option,com_docman/task,doc_download/gid,272/Ite

mid,1/

http://www.dsebd.org/by_industrylisting1.php

http://www.sb.iub.edu.bd/intern_report_asaduz_zaman.pdf

http://www.thedailystar.net/forum/2008/may/potential.htm

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Conditions Under Section 2CC of the Security and Exchange Ordinance, 1969

As per provision of the Depository Act, 1999 and regulations made there under, shares will only be issued in dematerialized condition. All transfer/transmission/splitting will take place in the

Central Depository Bangladesh Ltd. (CDBL) system and any further issuance of shares(right/bonus) will be issued in dematerialized form only.Conditions under section 2CC of the Securities and Exchange Ordinance, 1969

PART-A01. The company shall go for Initial Public Offer (IPO) for Ordinary Shares of Tk. each atan issue price of Tk. per share (including a premium of Tk each) worth Taka onlyfollowing the Securities and Exchange Commission (Pub

entrntry strategies of multinational companies into the capital market of bangladesh

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